Tuesday 24/01/2012

Nordea vitameter: Egocentrism of Latvian companies increases risks, reduces competitiveness

Business Etiquette Leads Companies to Pretend They Are Better Than They Are

Companies in Latvia think quite well of themselves when it comes to social responsibility, but this is in contradiction to realities in the business environment. What is more, the “good deeds” of businesspeople are focused on short-term benefits, and they comparatively seldom involve issues, which are outside of the relevant company’s direct zone of interests. This is seen in the Nordea vitameter study, which has been conducted by the Nordea Bank and the Stockholm School of Economics in Riga (SSE Riga).

Dr Arnis Sauka, who is the author of the Nordea vitameter, studies business processes for SSE Riga and is pro-rector for education at the Ventspils University College. “At the centre of business in Latvia is a very rational approach to business processes,” he says. “Companies focus mostly on those activities which lead to a direct return which is received as quickly as possible. For instance, a company may be focused on clients and employees while also maintaining good relationships with suppliers, but it is also aware of the effect, which such factors have on financial results. This may seem to be a logical focus, but research in other countries, including Lithuania, shows that companies gain in the long term by investing in distinctly social activities. In Latvia, by comparison, there is comparatively little in the way of investments in volunteer work which serves public interests or in environmental protection.”

Sauka goes on to say that there are areas in which Latvian companies tend to pretend to be better than they really are.  For instance, businesspeople in Latvia claim to be highly respectful of the law, but at the same time, the proportion of the so-called shadow economy in Latvia is at a level of around 40%. The same is true when it comes to gender proportions in management – owners and top managers deny any discrimination, but statistical data at the Nordea vitameter study clearly show inequality in this regard. “Of positive note here are the morals of Latvian businesspeople,” says the researcher. “Even if they don’t pay their taxes and engage in some gender-based discrimination, that is not something of which they tend to be particularly proud.”

“Observing public interests is advantageous in the long term,” says Jana Strogonova, Head of Retail, Nordea Latvija. “Costs are higher at first, yes, but business is a marathon more than a sprint. Participation in local activities and in the work of business organisations, as well as business operations which do not harm the surrounding environment – that requires an investment of time and money, but it also strengthens the relevant company’s competitiveness. Companies which reach out beyond their own walls have a better sense of client needs, find new business ideas, establish important contacts, and reduce business risks. Social responsibility is something of a springboard when there are crisis situations, and we all know that crises can occur again and again.”

Asked about which business sectors in Latvia demonstrate the highest level of social responsibility, respondents in the Nordea vitameter study pointed to retailing, the construction industry and manufacturing.  Lagging behind are service providers, wholesalers, real estate companies, and the hotel and restaurant sector.  The study found that companies, which take on greater risk, also tend to invest less in activities related to social responsibility, that proactive and innovative companies are more socially responsible than “follower-type” companies, and that larger companies tend to be more socially responsible than smaller ones.

Company directors in Latvia prefer to donate money, as opposed to time and work. 65% of directors have never been involved in activities aimed at the public good, although 58% of companies in Latvia have donated money during the past year. Money has most often gone to culture, art and sports, but far less often to educational institutions.  47% of companies have invested in the development of the local infrastructure.

Asked about the greatest benefits from a responsible approach to business, respondents pointed to a good reputation, motivated employees, and greater demand for the relevant company’s products and services.

The Nordea vitameter represents a measurement of business vitality, and it is organised by the Nordea Bank and SSE Riga. The study, which focused on the corporate social responsibility of companies in Latvia, was conducted in August and September 2011, and it was based on interviews with 405 randomly selected company directors and owners.

INTERESTING FACTS

Responsibility toward employees

  • 79% of companies support the on-going education of their employees;
  • 21% invest little or nothing in the education of staff;
  • 74% of company directors believe that they observe employee interests when taking business decision;
  • 93% of directors believe that they provide their employees with honest and appropriate compensation.

Responsibility toward clients

  • More than 90% of company directors say that they:
  • Provide information to their clients;
  • Are responsive to client complaints;
  • Observe client interests when taking decisions.

Responsibility toward suppliers

  • More than 85% of company directors say that they:
  • Are honest toward all suppliers, irrespective of their size;
  • Take supplier interests into account;
  • Inform suppliers about changes.

Environmental protection and improvement of the environment

  • 72% of companies have not supported the development of their local infrastructure;
  • 74% have conducted no research about the effects which they have on the surrounding environment;
  • 32% have supported environmental protection initiatives;
  • 73% use equipment, which saves on energy resources.

Financial support for society

  • 74% of company directors believe that they facilitate economic development in their area of operations;
  • 75% of companies help to improve the quality of life of people in their region;
  • 35% of company directors believe that the financial support that they have given has been of importance.

Work on behalf of the public interests

  • 35% of company directors have done volunteer work for the public good;
  • 60% of directors say that their employees can do work on behalf of the public good.

The study does not indicate a statistically important link between a company’s social orientation on the one hand and it’s operating results and profits on the other.  This means that at least in terms of just one year of research, it cannot be claimed that social responsibility in Latvia pays off in a direct way.

Infographics (LV)

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Presentation (LV)

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